Fabless Margins

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While PC sales are likely to improve in the fourth quarter, according to AMD, the company won't feel the effects of the boost until the PC makers burn through excess component inventory.

"People are missing the fact that this is a fabless company now. It's going to have fabless margins. They're not as impacted as they used to be by changes in top line," said Gleacher & Company analyst Doug Freedman.

Computer chip heavyweight Intel said on Tuesday its fourth-quarter sales should rise 3 percent in the December quarter, better than some analysts expected, but less than in healthy years.

Spending on microprocessors and other components that go into computers usually rises toward the end of the year, in part because of holiday shopping.

Since Intel warned in August about shaky consumer demand for PCs, lowering investors' expectations, semiconductor stocks surged through September in part on the belief that the worst might be over for the tech sector.

AMD warned in late September that its sales were also being hurt by weak demand from consumers, who are its main customers.

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A debt charge during the quarter boosted profit by the equivalent of 3 cents per share.

AMD's sales in the third quarter were $1.62 billion, in line with $1.615 billion that analysts expected, but they fell from $1.4 billion in the second quarter.

AMD's sales forecast for the December quarter was slightly below expectations.

"They need to gain some market share, especially in the higher margin businesses, and unfortunately for them Intel has too strong a product portfolio," said Srini Pajjuri, an analyst at CLSA.

AMD is betting its new lineup of "Fusion" silicon due for release in coming months will re-energize sales but it's unclear how they will compare to Intel's upcoming new offerings in price and performance. (Reporting by Noel Randewich; Editing by Robert MacMillan, Phil Berlowitz and Bernard Orr)